Can market power in the electricity spot market translate into market power in the hedge market?

Gabriel Godofredo Fiuza de Bragança and Toby Daglish

Energy Economics, 2016, vol. 58, issue C, 11-26

Abstract: Electricity is a non-storable commodity frequently traded in complex markets characterized by oligopolistic structures and uniform-price auctions. Electricity prices have idiosyncratic patterns not addressed by the usual commodity pricing literature. This paper develops an electricity market model that allows for oligopoly, vertical integration, and a uniform-price auction mechanism. It derives a linear equilibrium relationship between spot prices and state variables affecting firms' costs and demand. It then applies a two-factor forward pricing model over the equilibrium spot price process, and shows that forward prices can be positively affected by spot market power. An empirical estimation of the model follows, using NZEM data.

Keywords: Electricity; Market structure; Hybrid models; Wholesale markets; Forward contracts; Commodity pricing (search for similar items in EconPapers)
JEL-codes: C3 G13 Q41 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:58:y:2016:i:c:p:11-26

DOI: 10.1016/j.eneco.2016.05.010

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